Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Lipi Data Systems on 18 July, 1995
Equivalent citations: 1995ECR439(TRI.-DELHI), 1995(80)ELT542(TRI-DEL)
ORDER K. Sankararaman, Member (T)
1. This appeal has been referred to this larger Bench by the Original Bench which heard it for resolving the question whether it is only those inputs which are required during the course of manufacture of the final products which are eligible to modvat or whether all items provided normally with the final product ready for delivery at the factory gate would also qualify as inputs for modvat purposes. This question has arisen in respect of ribbons supplied by the respondents herein along with their final product, line printers which were cleared by them on payment of duty. The modvat credit claimed is of the additional duty of customs (countervailing duty) paid on the ribbons which were imported by them. Their claim was disallowed by the Assistant Collector of Central Excise which decision was set aside by Collector of Central Excise (Appeals) on appeal by them which has led to the present appeal by the department. The reference to the Larger Bench has been made in view of the conflicting decisions on similar issue by the different Benches of the Tribunal. Thus, while the South Regional Bench had held in the case of Wipro Infotech Limited v. Collector of Central Excise, Bangalore reported in 1994 (69) E.L.T. 82 that Ribbon used in relation to the manufacture of printers for computers is not eligible for Modvat Credit on the ground that the manufacture of printers is complete without the Ribbons being fitted on to it and Ribbon is only an accessory and not a component part of the line printers, the West Regional Bench had held in the case of jayshree Industries reported in 1993 (63) E.L.T. 492 that dry cells fitted in Quartz clocks and timepieces are essential components to make the final product operational and marketable and not an accessory therefor. Again, the North Regional Bench of the Tribunal had held in Collector of Central Excise v. Swaraj Mazda -1993 (68) E.L.T. 258 that Floor Mats specifically designed for use in particular types of Motor vehicles and normally supplied with them were inputs used in relation to the manufacture of such motor vehicles and eligible for Modvat Credit under Rule 57A. The decision in the Jayshree Industries case in respect of battery cells supplied in Quartz clocks was taken note of and followed. The contrary decision of the South Regional Bench in the Wipro Infotech Limited case followed the judgment of the Honourable Supreme Court in State of Uttar Pradesh v. Kores (India) Limited reported in 1977 Vol. 39 STC 8.
2. The appeal was heard by us on two days. Initially, the appellant Collector was represented by Shri M.M. Mathur, learned Joint Chief Departmental Representative. On the second occasion, Shri Sanjeev Sachdeva, learned Senior Departmental Representative took over the role and gave the rejoinder to the arguments advanced by Shri Udai Joshi, learned Counsel for the respondents.
3. Shri Mathur submitted that there are three criteria to be satisfied for availment of Modvat benefit :-
1. The inputs and final products should be specified in the Notification.
2. The items should be used in or in relation to the manufacture of the final products.
3. The item should not be excluded from the term input in terms of the explanation under Rule 57A.
Shri Mathur explained that the present case does not satisfy the second test as the ribbons cannot be said to be used either in the manufacture or in relation to the manufacture of their final product, namely, line printer. The latter are capable of being sold without the ribbons. The printers have reached the stage of manufacture even before, the ribbons are fitted therein. The ribbons are, no doubt, used in the printers by their customers but that does not mean that they are used in or in relation to the manufacture of the printers. The ribbons bear the same relationship to the printers as petrol to cars or aircrafts, film to a camera, cassette tape to a cassette player, paint to a brush or a battery cell to a torchlight. Such use at the hands of the consumer or user is after the manufacture is complete. These are consumable items and are consumed at the hands of the user. They are replaceable. The inclusion of the cost of ribbons in the price of the printer is as per the provisions of Section 4 for valuation for purposes of assessment of duty. That is not a factor for deciding the eligibility of ribbon for grant of Modvat benefit while clearing the printers. The printers are marktable without the ribbons and the ribbons are also sold separately to the customers. Shri Mathur, learned Joint Chief Departmental Representative then referred to the decision of the South Regional Bench of the Tribunal in Wipro Infotech Limited v. Collector of Central Excise, Bangalore reported in 1994 (69) E.L.T. 82. There, the very item in question in the present matter, namely, ribbon was held to be only an accessory for printers for computers and hence not eligible for Modvat Credit.
3A. Shri Mathur, thereafter referred to the Tribunal decision in Collector of Central Excise v. Swaraj Mazda reported in 1993 (68) E.L.T. 258 which is one of the decisions relied upon in the order of the referring Bench in support of the proposition that Modvat Credit is admissible and distinguished the said case from the present one. The floormats in the Swaraj Mazda case were specially designed to suit the particular vehicle. Likewise, in the case of Collector v. Jay Engineering Works Limited decided by the Honourable Supreme Court and reported in 1989 (39) E.L.T. 169 regarding nameplates for the fans, the latter could not be marketed without affixing the nameplates. That is not the case with line printers. He, therefore, pleaded that the appeal be allowed and the impugned. order-in-appeal set aside.
4. Shri Udai Joshi, learned Counsel for the respondents stated in reply that the term input is of wide connotation and would cover goods used in relation to the manufacture of the final product also. The purpose of the modvat scheme is to avoid the cascading effect of duty paid on the inputs. If modvat credit is not allowed of the countervailing duty paid on the Ribbons which are fitted to the printers prior to the completion of their manufacture and duty on the printers is charged on the value which includes the price of the ribbon, it will lead to double levy of duty. This should be avoided to serve the purpose of modvat. The line printer and the ribbon therefor are specialised items and are not like an ordinary typewriter ribbon.
5. Proceeding further on the resumed date of hearing, Shri Joshi, learned Counsel for the respondents stated that Modvat Credit was denied by the Assistant Collector on certain factual position. The Collector (Appeals) had allowed their appeal against the said order of the Assistant Collector. The present appeal against the order-in-appeal is on a totally new ground that the ribbons are not used in or in relation to the manufacture of line printers. The order-in-appeal had also been decided on grounds which are not pleaded in the instant appeal which should, therefore, not be entertained at all but dismissed on this preliminary ground itself. He stated that this was the plea advanced by them in their cross objection.
6. Reverting to the merits of the issue involved without giving up his preliminary objection stated above, Shri Joshi, learned Counsel for the respondents contended that the line printers cannot function without ribbons which are indispensable for their functioning. He distinguished the Kores case decided by the Honourable Supreme Court which had been relied upon by the Tribunal in the Wipro Infotech case. Kores was a Sales Tax case. The ribbons here are more sophisticated products, quite different from typewriter ribbons. In answer to a query from the Bench as to whether the buyer has got to buy the printer with the ribbon, Shri Joshi stated that it is the international practice for the manufacturers of printers to supply them, fitted with ribbons. In answer to a further query about judgments on similar issues subsequent to the passing of the referring order, Shri Joshi fairly conceded that the Honourable Patna High Court had, in the case of Tata Engineering & Locomotive Company Limited v. Union of India reported in 1994 (72) E.L.T. 525, held that Tool Kits supplied with motor vehicles by manufacturers, on the request of customers, are not inputs used in or in relation to the manufacture of such motor vehicles. The Special Leave Petition against the said judgment filed by the company has been dismissed by the Honourable Supreme Court as reported in 1994 (73) E.L.T. A129 in the Section 'Court Room Highlights'. He, however, distinguished that case from the instant matter stating that the tool kits were supplied by TELCO to certain customers as per their option. Motor Vehicles were supplied without such kits also. In the present case, the line printers are always sold with the ribbons and it is not an optional supply. The way in which the product is marketed is very material for deciding the question, he submitted and on this ground their case for modvat is acceptable. Shri Joshi referred to the invoices for the printers issued by the respondents, copies of which have been submitted. Ribbons are specifically mentioned in the invoices. This will bear out their contention. When the Bench enquired from him why Ribbons have been specifically mentioned in their invoices for printers which are made up of several parts, none of which they found necessary to mention specifically, Shri Joshi, the learned Counsel for the respondents, had no speific reply as also to the observation of the Bench that the possible reason for the same is that the ribbon had not been considered to be a component part of the line printer. He pleaded in conclusion that the department's appeal be dismissed.
7. Shri Sanjeev Sachdeva, learned Senior Departmental Representative gave a rejoinder to the submissions made by the learned Counsel. On the preliminary point raised by him that, in the present appeal, the department has raised certain new grounds which were not alleged against them during the adjudication proceedings, Shri Sachdeva referred to paragraphs 4 and 6 of the impugned order-in-appeal wherein their submissions have been recorded. Thus, it has been stated in the order-in-appeal that they had contended in their appeal that they were obtaining various types of imported raw materials and one such item is ribbon which had been declared by them as inputs in their declaration filed under Rule 57G of Central Excise Acts. The finding of the Assistant Collector that they had not filed declaration showing ribbons as inputs was thus incorrect. This plea of theirs had been examined by the Collector (Appeals) and accepted by him. The present appeal by the department thus arises out of the impugned order and it cannot be urged that the department has made out a new case, he pleaded. Turning to the merits of the case, Shri Sachdeva adopted the contentions raised in the appeal. Ribbon is not of the type of material that can be said to be used in or in relation to the manufacture of the final product, printer. He relied upon the Tribunal decision in Wipro Infotech which has followed the Supreme Court judgement in the case of State of UP v. Kores (India) Limited wherein it was held that typewriter ribbon is an accessory and not part of a typewriter under the UP Sales Tax Act, 1948. He referred to para 17 of the Supreme Court judgement in the Kores case wherein it had been held that ribbon is an accessory and not part of typewriter though it may not be possible to type out any matter without it. He reiterated the plea raised in the appeal and urged that the same be allowed.
8. We have considered the submissions made by both the sides. The Assistant Collector had disallowed Modvat Credit claimed by the respondents herein of countervailing duty of Rs. 1,22,109/- paid by them on Ribbons. He had rejected their claim holding that they had not filed any declaration or intimation regarding the inputs and outputs of commodity, Ribbon, as required under Rule 57G of Central Excise Rules. He had noted that although they had filed modvat declarations on 17-4-1987 and 11-4-1988 and declared final products, "Line Printers" and "parts and accessories" and also declared their inputs and outputs, no such intimation had been given with regard to ribbons. He had then observed that they were using ribbons captively for use in the line printers. The ribbons falling under Heading 9612.00 are exempt from duty under Notification 217/86 dated 2-4-1986. As per rule 57D, (sic) Modvat is not available if final product is exempted. He had also held that the figures of ribbons furnished by them did not tally with the figures maintained by them. When this order was challenged by them before Collector (Appeals) she found that the Assistant Collector's finding that they had not filed declaration showing ribbons as inputs was incorrect. She took note of Sl. No. 23 of their declaration filed by them on 17-4-1987. The final products declared by them were Line Printers and parts and accessories. Duty was being paid on the final products even if the intermediate product ribbon is exempt from duty under Notification 217/86. Accordingly, she held that the respondents (herein) were entitled to Modvat Credit in respect of their raw material for ribbons since they are used in the Line Printers only. She has also observed that they had stated that when ribbons of Line Printers are sold as parts and accessories, duty is paid by them. After taking into consideration the arguments advanced by them, she held that the finding of the Assistant Collector was not justifiable and accepted their plea that the declaration filed by them on 17-4-1987 indicating ribbons as inputs of parts and accessories would suffice for the purpose of rule 57G. She also found that their plea that since duty was payable on the final products, Line Printer, Modvat Credit was admissible for Ribbons which are ultimately used in the manufacture of line printers. We find that they have declared two items as their final products, namely (1) Line Printers and (2) Parts and Accessories. For these two final products they had declared as many as 23 Raw Materials for which Modvat was sought to be availed by them. There is no demarcation as to which of these 23 items were for the Line Printers and which were for the parts and accessories. The Assistant Collector's referring to the applicability of Rule 57D (sic) with reference to exemption from duty for Ribbons used captively for use on Line Printers is not clear. The dispute raised is about Modvat of countervailing duty paid on Ribbons claimed as input in or in relation to the manufacture of Line Printers. When such countervailing duty is the question, the point raised about Ribbons being exempt from duty under Notification 217/86 in the context of manufacture of Line Printers is not clear. The plea raised by the respodents that they were clearing ribbons on payment of duty should have no effect on the question for decision before us, namely whether ribbons constitute inputs in relation to manufacture of Line Printers.
9. Before proceeding to deal with the matter on merits, we have to decide the preliminary point raised by the respondents that it is not open to the department to make out a new case against them in the present appeal which was not the issue dealt with by the Assistant Collector. The Assistant Collector had not taken the stand in the earlier proceedings that Ribbons are not inputs in the manufacture of Line Printers. His finding was not to that effect. There appeal, therefore, was not on this question and the Colector (Appeals) had also not disposed of the appeal before her from this angle. The question whether ribbons are inputs in the manufacture of line printers has been raised for the first time in the present appeal. This has been assailed by the respondents. In this regard, the learned Senior Departmental Representative, Shri Sanjeev Sachdeva had pointed out that the Collector (Appeals) had held in his order that ribbons are used in the manufacture of line printers and that it is this finding that is challenged in the appeal. This is correct. The Assistant Collector had held that the respondents had not given a declaration or intimation with regard to ribbons. The finding has been set aside by Collector (Appeals) holding that there was a declaration filed by them. No doubt, the question had not been raised by the Assistant Collector that ribbons are not inputs in the manufacture of Line Printers but the objection taken was a wider one that they had not filed the declaration for ribbons. If the Assistant Collector had raised the objection against the declaration that ribbons are not inputs in the manufacture of Line Printers, then he could not, obviously, have raised the objection which he did. As the adequacy of the declaration comes at a later stage after making sure that there is a declaration and as the first objection of the Assistant Collector was that there was no declaration, the question that ribbons are not inputs in the manufacture of Line Printers can be raised only when the first charge is set aside. If the Collector had remanded the matter to the Assistant Collector to consider the declaration already filed and decide whether it covered the case, it would have been open to the Assistant Collector to decide this question. As the same has been decided by the Collector (Appeals) at her level the challenge thereto could be only in appeal. That is what has been done now. Accordingly, we accept the point urged by the learned Senior Departmental Representative on the preliminary objection raised by the respondents.
10. We now examine the issue involved on merits. It has been contended in the appeal that the product, Line Printer is manufactured even without the ribbons and that the latter are only accessories of printers and not parts thereof. Reliance has been placed on the Tribunal decision in the case of Wipro Infotech Limited which in turn relied upon the Supreme Court decision in State of Uttar Pradesh v. Kores (India) Limited reported in 1990 (26) ECR 464 SC. It was held by the Supreme Court that Ribbon is an accessory and not a part of typewriter (unlike spool). Applying this ratio, it was held by the Tribunal in the Wipro case that the manufacture of the printer is complete without the ribbon being fitted on to it. The plea of Wipro that they were marketing the printers with the ribbon fitted did not find favour with the Bench as it was observed that it was not the case that the printer could not be marketed without the fitment of ribbons. We had, in addition, invited the attention of the learned counsel for the respondents to the judgment of the Patna High Court in Tata Engineering Locomotive Company Limited (TELCO) v. Union of India reported in 1994 (74) E.L.T. 525. Shri Udai Joshi, learned Counsel sought to distinguish the said case from the present one stating that in that case the tool kits were supplied at the option of the purchasers whereas the line printers are invariably supplied by them with the ribbon fitted. We shall examine the applicability of these decisions to the present case.
11. The Wipro Infotech case essentially followed the Supreme Court decision in State of UP v. Kores (India) Limited. In the latter case, the Supreme Court was concerned with an appeal by the State of UP against the judgement of the Allahabad High Court that Typewriter Ribbon is an accessory of Typewriter and not part therof. The appeal was dismissed upholding the High Court's finding. As Kores (India) Limited were manufacturers/sellers of Typewriter Ribbons and not of typewriters themselves and as it was a case of sale of such Ribbons separately from Typewriters, the question whether the ribbons are parts or accessories of typewriters assumed importance. The plea of Kores that Ribbons were only accessories and not parts of Typewriters and hence not liable to Sales Tax leviable on Typewriters and parts found acceptance from the Courts. In the present case, the Ribbons are fitted to the Printers and cleared by the manufacturer of printers in that condition. The question whether the article is a part of the printer or only accessory is not relevant where the issue for decision is not the rate of duty applicable to parts of printers but whether it is used in or in relation to the manufacture of the final product. An item may be only an accessory but it can still be of a type used in or in relation to the manufacture of final product. It will depend upon what the accessory is and the manner of its use in the manufacture to decide Modvat eligibility.
11A. It has been held in the Wipro Infotech case that, apart from the ribbon being only an accessory of the printer, it was not their case that printers cannot be marketed without the fitment of the Ribbons. It was further held that the manufacture of Printer is complete without the ribbon being fitted on to it. The question whether printers can be marketed without the ribbons will assume relevance only if it is contended contrarily that the manufacture of Printer is not complete without the fitment of the ribbon. Ribbons need not be compulsorily supplied with the printer and they can be and, in fact, are bought by the purchasers of printers to meet their future requirements, as they are consumable and would need replacement. But the question here is that these are supplied alongwith the printer. What is supplied is the printer with the ribbon which is essential for its functioning. Even in the course of manufacture of the printer, the utility of ribbon to test whether the printer has been properly assembled and whether it would function properly cannot be gainsaid. For marketing purpose also, the customer would require to test the printer, for which purpose, the availability of the ribbon therein would be necessary. This would facilitate marketing of the printer. The nature of attachment or fitment of an accessory may vary for different accessories. The fact that a ribbon can be easily fitted into the printer does not detract from the fact that ribbon fitted to the printer at the time of its assembly and supply can be said to be used in or in relation to the manufacture of printer. The customer may replace it later on when it gets worn out and replace it with a new one but as far as the initially fitted ribbon which is supplied with the printer is concerned, it is to be taken as used in relation to the manufacture of the printer.
12. Shri Joshi, learned counsel for the respondents sought to distinguish the Telco judgement of the Patna High Court from the present case by pointing out that the Tool Kits were supplied with the motor vehicle chassis at the option of the purchasers whereas in the present case ribbons are invariably supplied with the printer. Of more importance is the fact that tool kits are not used in or in relation to the manufacture of the motor vehicles and they are not necessary for making use of them. Only when some repair or attention is necessary at intervals after the vehicles are used for sometime would the tool kits be made use of. Their being supplied alongwith the vehicles has been held to be not amounting to their being used in or in relation to the manufacture of vehicles.
13. One of the reasons which weighed with the Honourable High Court in ruling that Modvat is not admissible for such Tool Kits is that tools are specifically excluded from the definition of inputs in rule 57A. Para 20 of the Patna High Court judgement is extracted below :-
"20. Again examining it from another angle the definition of the 'inputs' does not include tools used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products. The tool kits is definitely tools and it is specifically excluded from the definition of 'inputs' by the law maker with clear intention to deny the modvat credit on the tool kits supplied with motor vehicle chassis."
With respect, we would like to observe that the excluded entries like tools, machinery, appliances etc. in the explanation to rule 57A are such goods as are used for producing or processing of any goods for bringing about any change in any substance in or in relation to the manufacture of final products. The tools which are supplied in the tool kit which are cleared alongwith the motor vehicles are not the tools which can be said to have been used for producing or processing such motor vehicles. In fact, the finding in the preceding para (para 19) of the judgement that the tool kits supplied with the motor vehicle chassis do not participate directly or indirectly in or in relation to manufacture of the motor vehicle chassis effectively rules out any type of .role disqualifying for them in the context of Rule 57A. On this count alone it may not be in order to hold that tools that are supplied with the motor vehicles do not qualify for Modvat credit. We, however, find that, apart from the definition of inputs in the explanation under Rule 57A, the Honourable Patna High Court has considered other aspects. Paragraphs 19, 21 and 22 of their judgements are extracted below :- (Para 20 has already been) "19. It is the admitted position of the parties that tool kits are supplied by the petitioners alongwith their motor vehicle chassis on the request of buyers. Accordingly, the supply of tool kits is limited to some of the motor vehicles chassis but not applicable to all motor vehicle chassis manufactured and sold by the petitioners. The term 'manufacture' relates to all motor vehicles as provided for in Section 2(f) of the Act. The motor vehicle chassis cleared without tool kits is also manufactured and duty is paid thereon. Definitely, therefore, the motor vehicle chassis are fitted to be manufactured within Section 2(f) whether or not tool kits are supplied alongwith the motor vehicles. Again tool kits supplied with the motor vehicle chassis do not participate directly or indirectly in or in relation to manufacture of the motor vehicle chassis. The chassis is already manufactured goods and counted for as final product in petitioners RG 1 register whether or not tool kit is supplied. There is no doubt that the supply of the tool kits is a subsequent action to the manufacture of chassis to be used in relation to maintenance and repair of the motor vehicle chassis and not used in relation to the manufacture of the final product.
21. It is also settled law that value of accessories and spares should be added to the value of the motor vehicle chassis and accordingly the petitioners include the value of tool kits in the value of the motor vehicle chassis manufactured by them. In our opinion, the criteria for determination and inclusion of value is not the basis for allowing and disallowing Modvat credit as per provision stipulated under modvat credit as decided by the Apex Court in the case of Union of India v. Bombay Tyre International Limited reported in AIR 1984 SC 420 expenses incurred on account of several factors including service which have contributed to the value of an excisable goods are liable to be included in the assessable value. Accordingly, the petitioners are adding cost of tool kits in the assessable value of the chassis on the above principle of law and not for the reason that such tool kits are used in or in relation to the manufacture of chassis as submitted by the learned counsel for the petitioners.
22. Again tool kits cannot be said to be an item like driver's seat or the wiper machine, as urged by the learned counsel for the petitioners, helping in the marketability of the finished products i.e. motor vehicle chassis. The driver's seat is essential component of the motor vehicle chassis manufactured by the petitioners and without kit the chassis cannot be cleared or cannot be transported outside the factory. Wiper machine is also fitted with all chassis manufactured by the petitioners. Accordingly, the wiper machine and driver's seat are the essential component of the motor vehicle chassis whereas the tool kits cannot be said to be essential component of a motor vehicle chassis for it is admittedly supplied only when there is a request from a customer for supply of the same. It is thus clear that the chassis is marketed without the help and assistance of the tool kits and accordingly the ratio of the decision of the Apex Court in the case of Jay Engineering on which the learned counsel strongly relied upon, has no application in the present case as the name plates to electric fans are not similar to tool kits supplied with motor vehicle chassis."
On the basis of these findings, it has been held that from whatever angle the issue is examined, the irresistible conclusion that is arrived at is that tool kits supplied with the motor vehicle chassis at the request of the customers cannot be said to be inputs used in or in relation to the manufacture of motor vehicle chassis.
14. Applying the above ratio to the present case we find that the role of the ribbon in a printer is quite different from that of the tools supplied with a motor vehicle. The ribbon has a vital role in the functioning of the printer unlike the tools in question. We have already observed that the question whether an article is a part or accessory of the goods manufactured and cleared is not conclusive of its Modvat eligibility. The essentiality of the ribbon in the functioning of the printer and its fitment in the structure of the printer set it apart from the case of tool kits supplied with the motor vehicles. We accordingly hold that this view is not in conflict with the judgement of the Patna High Court in the Telco case, the Special Leave Petition against which filed by them had also been dismissed by the Honourable Supreme Court as reported in 1994 (73) E.L.T. A129.
15. In the order of the Bench which originally heard this matter and referred to the larger Bench, note was taken of the earlier decisions in Collector of Central Excise v. Swaraj Mazda reported in 1993 (68) E.L.T. 258 and Jayshree Industries v. Collector of Central Excise reported in 1993 (63) E.L.T. 492 wherein it was respectively held that specially designed floor mats supplied with motor vehicles and dry battery cells supplied with quartz clocks and timepieces were held to be inputs eligible for Modvat. These decisions, no doubt, were taken before the aforesaid Telco judgement of the Honourable Patna High Court. In the Jayshree case the West Regional Bench has elaborately discussed the matter from the stand point of whether the bettery cells are component parts or accessories and of the economic objective of the Modvat Scheme as reflected in the Finance Minister's Budget Speech while introducing the Scheme in 1986. The Bench also observed in para 12.3 (page 193 E.C.R. Vol. 45) as follows :-
"12.3 It may also not be out of context to mention here that even the Tax Reforms Committee Chaired by Professor Raja Chelliah in their final Report Part I (vide para 4.11 of Chapter 4) have cited this specific case of dry cell used in Quartz Clock as one example, arising out of lack of understanding of the economic justification for extension of Modvat Credit and it is a case of denial of relief, at the Officer's discretion."
The finding was that the battery cells are not accessories but component parts of the clocks and timepieces going by the ratio of the Supreme Court decisions in Collector v. East End Paper Industries - 1989 (43) E.L.T. 201 and Collector v. Jay Engineering Works - 1989 (39) E.L.T. 169. The relevant observations from the East End Paper Industries judgement are extracted below :-
As the Act does not define goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictionary meaning of the expression is that to become 'goods' it must be something which can ordinarily come to the market to be bought and sold and is known to the market as such. The tribunal found, and there was material for the Tribunal to do so, that the market in which articles in question were sold- were paper packed and wrapped in paper. Therefore, anything that enters into and forms part of that process must be deemed to be raw material or component part of the end product and must be deemed to have been used in completion or manufacture of the end product."
The Court then took note of their own earlier judgement in Collector of Central Excise v. Jay Engineering Works Limited reported in 1989 (39) E.L.T. 169 (extract below)
5." There the respondent was the manufacturer of electric fans, and brought into its factory nameplates under Tariff Item 68 of the erstwhile Central Excise Tariff. The nameplates were affixed to the fans before marketing them. The respondent claimed the benefit of proforma credit in terms of Notification No. 201/79 dated 4th June, 1979, which was for the purpose of relief on the duty of excise paid on goods falling under Tariff Item 68, when these goods were used in the manufacture of other excisable goods. The said notification stated that in supersession of the Notification No. 178/77 of the Central Excise dated 18th June, 1977, all excisable goods on which duty of excise was leviable and in the manufacture of which any goods falling under Item No. 68 have been used, were exempt from so much of the duty of excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. In that case, the question before the Tribunal was whether the nameplates could be considered as component part of the electric fan, so as to be eligible for proforma credit under the exemption notification. It was found by the Tribunal that no electric fan could be removed from the factory for being marketed without the nameplate. The Tribunal also noted in that case that even though it could be said that electric fans could function without the nameplates, for actual marketing of the fans, the affixation of the nameplate was considered an essential requirement.
6. To be able to be marketed or to be marketable, it appears to us, in the light of facts in the appeals, that it was an essential requirement to be goods, to be wrapped in paper. Anything required to make the goods marketable, must form part of the manufacture and any raw material or any materials used for the same would be component for the end product."
Following the ratio of the aforesaid case, the Tribunal held that Battery Cell is a component part of the Quartz Clocks and eligible for Modvat Credit. This decision with which we agree is not, we respectfully feel,, vitiated by the contrary view about the status of Ribbons for Computer Printers as accessories and not component parts of Printers as held by the South Regional Bench of the Tribunal in the Wipro Infotech Limited case citing the Supreme Court judgement in State of U.P. v. Kores (India) Limited about typewriter ribbons being treatable as acessories and not component parts of Typewriters.
The Supreme Court judgments in the East End Paper Industries and Jay Engineering Works cases were taken note of the Patna High Court but they distinguished the said cases from the one before them and held that tool kits were not used in or in relation to the manufacture of motor vehicles. As, however, discussed by us earlier, the role of the Ribbons in the Printers and their use in the manufacture of the Printers sets them apart from the case of Tool Kits in relation to motor vehicles. The argument that Printers can be marketed without the Ribbons does not take note of the fact that the Printers are actually sold fitted with Ribbons as contended by the learned Counsel Shri Joshi in the course of his argument. Similarly the argument that Ribbons are consumable items which are periodically replaced by the users ignores the fact that items like batteries which are fitted in motor vehicles are also replaceable parts and are replaced by the consumers, when they become exhausted. On that score, they are not denied Modvat benefit.
As regards the applicability of the Supreme Court judgment regarding typewriter ribbons to the present case, we feel with respect, that the question whether the ribbons are component parts of Printers or only accessories thereof is not the test for deciding admissibility of Modvat Credit at the hands of the manufacturer of the Printers. Such a question was relevant in the Kores case where the ribbons were manufactured and sold by a Ribbon manufacturer and not sold by a typewriter manufacturer after fitting the ribbon therein. Though factors like essentiality of the accessory in question for the functioning of the article and the inclusion of the cost of such accessories in the value of the article in question may not be conclusive for deciding the admissibility for Modvat of such accessories and the real test is whether the said accessories are used in or in relation to the manufacture of the final product, we are of the view that the Ribbons in the present case satisfy this test as already examined by us in paragraph 11 of this order. The observations in the Tax Reforms Committee about dry cells used in Quartz Clock referred to in the Jayshree Industries decision will be equally applicable in the present case.
16. While coming to the above conclusion, we would answer the question actually posed by the referring bench that the inputs to qualify for Modvat Credit under Rule 57 A of the Central Excise Rules would be those which are used in or in relation to the manufacture of final product. Items which are provided normally with the final products ready for delivery at the factory gate would not qualify for such benefit if they do not satisfy the test of use in or in relation to manufacture, the latter term having the same meaning as laid down in Section 2(f) of Central Excises and Salt Act of including any process incidental or ancillary to the completion of the manufactured product. In the facts of the present case, we have held that fitting the ribbon in the Printer is part of such process of manufacture.
17. Since the impugned order passed by Collector (Appeals) provided for the Assistant Collector to determine the actual amount of Modvat Credit admissible to the present respondents on the basis of evidence supplied by them, we would, while holding that Modvat Credit is admissible in respect of ribbons fitted in the printer manufactured and supplied by them, leave it to the Assistant Collector to verify that the credit allowed relates to such ribbons only and not to ribbons supplied extra alongwith the printers or those that are supplied separately as replacement for used ribbons. The Revenue appeal is dismissed with the above observation.
18. The respondents have filed a cross objection which only contains submissions which were made during the arguments advanced before us while resisting the department's appeal. The relief claimed therein is only the dismissal of the appeal and not anything more than what had already been granted to them in the impugned order-in-appeal. The cross objection is misconceived in law and is dismissed accordingly.